Which One of the Following Statements Accurately Describes the Effect

question 126

Multiple Choice

Which one of the following statements accurately describes the effect of a liquidated damages clause on a plaintiff's claim in a breach of contract action?

• A) Liquidated damages only apply to losses caused by excess water, such as floods or tidal waves.
• B) The plaintiff will likely be awarded a judgment for all the damages that "naturally and directly flow from the breach."
• C) The court will likely award the amount set out in the clause if it considers that to be a genuine estimate by the parties of the likely consequences of a breach.
• D) This clause requires the injured party to take all reasonable steps to lessen (mitigate) his losses.
• E) The court will award the amount specified only if it accurately reflects the losses that actually took place.

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Definitions:

Equivalent Units

Represents a calculation in process costing that converts partially completed units into a number of fully equivalent units.

Weighted-Average Method

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the average cost of all units available for sale during the period.

Cost Per Equivalent Unit

A calculation used in process costing, dividing total production costs by the number of units produced, accounting for partially completed units.

Process Costing

A costing method used when identical or similar goods or services are produced in mass quantities, assigning costs to units of product based on the process they go through.